Problem 1

On January 1, 2019, Creative Company purchased RCC Companys 10%, 10-year P3,000,000 face value bonds which pays interest every December 31. Creative companys total investment cost which includes commissions and taxes of P84,555 would give Creative Company a yield rate of 12%. The securities were classified as financial assets at fair value through other comprehensive income.

The fair value of the debt instruments at December 31, 2019, 2020, and 2021 were P2,697,425, P2,740,466, and P2,794,954 respectively.

On January 1, 2022, Creative Company sold the debt instrument for P2,850,000.

1. How much is the fair value of the bond on January 1, 2019 (upon initial recognition)?

2. How much is the unrealized gain/loss reported in the equity section of the company's statement of financial position in December 31, 2020?

3. How much is the unrealized gain/loss included in the other comprehensive income in the company's 2020 statement of comprehensive income?

4. How much is the gain/loss on sale in January 1, 2022?

ROUND OFF TO WHOLE NUMBER

SHOW SOLUTION

Problem 1 On January 1, 2019, Creative Company purchased RCC Company's 10%, 10-year P3,000,000 face value bonds which pays interest every December 31. Creative company's total investment cost which includes commissions and taxes of P84,555 would give Creative Company a yield rate of 12%. The securities were classified as financial assets at fair value through other comprehensive income. The fair value of the debt instruments at December 31, 2019, 2020, and 2021 were P2,697,425, P2,740,466, and P2,794,954 respectively. On January 1, 2022, Creative Company sold the debt instrument for P2,850,000. 1. How much is the fair value of the bond on January 1, 2019 (upon initial recognition)